As of August 12, 2023, Tyson Foods Inc (TSN, Financial) reported a daily gain of 2.77%, with a 3-month gain of 12.99%. With an Earnings Per Share (EPS) of 0.92, the question arises: Is Tyson Foods significantly undervalued? This article aims to provide a comprehensive valuation analysis of Tyson Foods. Read on to gain valuable insights into the company's financial health and growth prospects.
Company Introduction
Tyson Foods Inc (TSN, Financial) is a protein-focused food producer that sells raw chicken, beef, pork, and prepared foods. The company's two largest segments are chicken and beef, each comprising about one-third of U.S. sales. Prepared foods constitute roughly 20% of sales and include brands like Tyson, Jimmy Dean, Hillshire Farm, Ball Park, and Sara Lee. Tyson Foods also sells some products overseas, accounting for just 5% of total revenue. With a market cap of $19.60 billion and a current stock price of $55.24, compared to the GF Value of $86.89, Tyson Foods appears to be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If a stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Tyson Foods stock is significantly undervalued. At its current price of $55.24 per share, the stock is believed to be significantly undervalued, indicating that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Tyson Foods has a cash-to-debt ratio of 0.08, ranking worse than 81.79% of companies in the Consumer Packaged Goods industry. Overall, Tyson Foods' financial strength is rated 6 out of 10, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term offers less risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Tyson Foods has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $53.30 billion and Earnings Per Share (EPS) of $0.92. Its operating margin is 2.41%, ranking worse than 62.62% of companies in the Consumer Packaged Goods industry. Overall, Tyson Foods' profitability is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of Tyson Foods is 8.2%, ranking better than 56.18% of companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 13.6%, ranking better than 63.12% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Tyson Foods' ROIC is 2.41 while its WACC came in at 6.67.
Conclusion
In summary, the stock of Tyson Foods Inc (TSN, Financial) is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 63.12% of companies in the Consumer Packaged Goods industry. To learn more about Tyson Foods stock, you can check out its 30-Year Financials here.
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